Amid Gains in Jobs and Pay, Americans Rejoin the Work Force

A worker on the roof of a construction project in Montclair, N.J. Over the last 12 months, wages advanced at a 2.2 percent pace, significantly ahead of the inflation rate.Credit
Bryan Anselm for The New York Times

The economy cruised into the new year with a burst of fresh momentum, adding jobs at the fastest pace since the boom of the late 1990s and lifting employment and wage prospects for millions of Americans left behind in a long but mostly lackluster recovery.

The Labor Department said on Friday that employers added a seasonally adjusted 257,000 jobs in January, but even more significant was a revision of earlier estimates showing an additional gain of 147,000 jobs in November and December.

Since Nov. 1, employers have hired more than one million new workers, the best performance over a three-month period since 1997. More jobs were created in 2014 as a whole than in any year since 1999.

“This is the best employment report we’ve had in a long time,” said Guy Berger, United States economist at RBS. “The labor market looks like it’s in really good shape as we head into 2015.”

If the job market continues to gather strength into the run-up to the presidential election of 2016, as some forecasters now predict, the rebound promises to reshape the political landscape, as well as the economic one.

Fierce Republican criticism of President Obama’s economic policies, a touchstone of the 2012 presidential campaign, could resonate less with voters the next time around. Hillary Rodham Clinton or another potential Democratic nominee might have an easier time making the case for keeping the White House in Democratic hands.

The key, say political experts from both parties, is how the bounty from renewed growth is shared and whether wages for middle-income workers rise more quickly, along with other yardsticks like overall economic activity and the stock market.

Change in Jobs and Unemployment Rate

Source: Bureau of Labor Statistics

“Good statistics always favor incumbents or the incumbent party,” said Wayne Berman, who served as a top Commerce Department official under the first President Bush and more recently was a senior adviser to the Romney and McCain campaigns.

“The challenge for Republicans remains the same in the face of today’s numbers,” said Mr. Berman, now head of government relations at the Blackstone Group. “We have to advocate policies that are relevant to middle-income Americans’ everyday lives.”

On the wage front, the jury is still out. Last month, average hourly earnings rebounded after falling in December, increasing 2.2 percent for the last 12 months and suggesting that the benefits of a tighter job market could soon begin to spread more broadly to ordinary workers.

But the major question after Friday’s report is whether better wage growth can be sustained.

A few other signals are flashing yellow as well. Data last week showed that economic output grew at a slower-than-expected 2.6 percent rate in the fourth quarter of 2014.

And on Thursday, the government reported a big jump in the country’s trade deficit in December, as imports surged and exports fell. With the dollar gaining strength against the euro and other currencies, a rising trade imbalance may weigh on the economy in 2015.

Nevertheless, even the one seemingly negative note in the January jobs report — an increase in the unemployment rate to 5.7 percent from 5.6 percent in December — was actually an encouraging sign, analysts said, since it was mostly caused by more jobless Americans looking for work again as labor demand heats up.

The overall picture was so encouraging, experts said, that Federal Reserve policy makers may feel more comfortable starting their long-awaited move to raise short-term interest rates in June, a step Wall Street had generally expected to be delayed until September or even later.

“Employment growth is astonishingly strong,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “With every indicator we follow screaming that payrolls will be very strong for the foreseeable future, wage pressures will intensify.”

Others cautioned that the Fed would probably wait for more evidence that underlying inflation was picking up before deciding to pull the trigger.

“This is a step in the right direction, but it is not a game changer for the Fed,” said Diane Swonk, chief economist at Mesirow Financial in Chicago. “It takes away the concern that wages are decelerating, but we still have to see them accelerate.”

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Although the unemployment rate has been steadily falling since peaking at 10 percent in October 2009, wage gains have been paltry, especially when inflation is taken into account.

And even in months when wages rose more sharply, hopes for a more durable upswing were dashed by weakness the next month, as in November and December, when a 0.2 percent jump was immediately followed by a 0.2 percent dip.

That has added to the challenges facing Fed officials in gauging whether the slack built up in the labor market since the recession is finally receding and how much economic running room they should provide for wages to catch up after a long period of stagnation.

The jobless rate is an imperfect guide because people who give up the search for work entirely are not counted as unemployed. Last month’s slight increase in the participation rate was encouraging, despite the resulting rise in the unemployment rate, because it suggested that more such people are being lured back to the job market, helping to heal the economy without generating fears of outsize inflation.

Photo

A welder at work last month in Montclair, N.J. Since Nov. 1, employers have hired more than one million new employees.Credit
Bryan Anselm for The New York Times

Although the latest data was stronger than most analysts expected, it is unlikely to change the timetable for Federal Reserve officials because it is consistent with the Fed’s expectations. Janet L. Yellen, the Fed’s chairwoman, and other officials have signaled repeatedly that they would like to start raising rates come summer.

“I remain comfortable with the assumption that circumstances will come together around midyear or a little later,” Dennis Lockhart, chief of the Federal Reserve Bank of Atlanta, said in a speech Friday in Naples, Fla. “I won’t be more definitive than that. I think all possibilities from June on should remain open.”

Ms. Yellen may provide some additional insight when she makes a biannual appearance Feb. 24 before a Senate committee to testify about monetary policy. She will testify before a House committee the next day.

Along with the generally positive tenor of the headline numbers, economists were also heartened by job gains in a broad variety of industries, both white collar and blue collar.

For example, the construction industry, which is still suffering from the effects of the housing bust seven years ago, gained 39,000 jobs. Manufacturers added 22,000 workers, and restaurant and food service employment rose nearly 35,000.

At the same time, higher-paid tiers of the economy also displayed strength. Financial companies and insurance providers hired more than 22,000 additional workers, and the booming health care field gained another 38,300.

One notable weak spot was oil and gas extraction, as plunging energy prices prompted companies to lay off 1,900 workers, bringing total employment in the sector to 199,500. The public sector eliminated 10,000 jobs, including a 6,000 cut in employment by the federal government.

“The good news is that there was hiring across a wide range,” said Tara M. Sinclair, a professor of economics at George Washington University and chief economist at Indeed.com, one of the nation’s largest job-posting sites .

“People worry about having too many low-end jobs being created,” she said. “But we need those jobs too.”

Binyamin Appelbaum contributed reporting.

A version of this article appears in print on February 7, 2015, on Page A1 of the New York edition with the headline: Job Count Finds Best 3 Months Since Late 1990s. Order Reprints|Today's Paper|Subscribe